Not All Recessions Are Created Equal

Earlier this month, The Financial Times linked to a post by commentator Mike Shedlock about the failure of Keynesianism. I’m not sure why: the post was a standard-issue evidence-free rant. But there is something interesting about it, all the same: None of the alleged policy mistakes used to declare Keynesian economics a failure have anything to do with Keynesian economics.

Here’s the list cited by Mr. Shedlock. Written by Urs Paul Engeler, it originally appeared in the conservative Swiss magazine Die Weltwoche: “By following today’s apologists of the British economist John Maynard Keynes (1883-1946), the so-called ‘welfare’ states pumped too much money (which they didn’t have) into consumption: into pensions for all (Europe), exorbitant armament (U.S.), endangered industries (both) and, finally, bailouts for ailing mortgage banks (also both). This intervention was celebrated by Keynes’ disciples as the ‘return of politics.’ ”

Pensions are Keynesian economics? Bloated defense budgets are Keynesian economics? Who knew? Even bank bailouts, whatever you think of them, have nothing
to do with anything in the Keynesian model per se.

So what’s going on here?

I’m not the first person to notice this, but whenever you read conservatives trying to critique what they think the other side believes, you find them assuming that their opponents must be mirror images of themselves. The right believes that less government spending is always good, regardless of circumstances, so it assumes that the other side must always favor more government spending. The right says that deficits are always evil (unless they’re caused by tax cuts), so they assume that the center-left must favor deficits in all conditions.

I personally get this a lot, of course. Not a day goes by without someone blithely asserting that I have never called for spending cuts on anything, and that I have never called for action against budget deficits. A few minutes searching my writing would disabuse them of these beliefs, but they don’t need to check — they know.

What seems beyond their intellectual range is the notion that other people might have subtler beliefs than their own. Keynesianism, in particular, is not about chanting “big government good.” It’s about viewing recessions through the lens of an economic model under which temporary increases in government spending can, under certain circumstances, help reduce unemployment.

Indeed, not all recessions call for fiscal stimulus; it’s the special conditions of the liquidity trap that make stimulus essential now — which is why the Bush deficits, run under non-liquidity trap conditions, say nothing at all about the desirability of deficits now.

I have no hope of actually getting through with this, of course. To actually understand what people like me are saying, we’d have to get past crude slogans and simplistic nostrums. The problem is obvious.

Truthout has licensed this content. It may not be reproduced by any other source and is not covered by our Creative Commons license.

Paul Krugman joined The New York Times in 1999 as a columnist on the Op-Ed page and continues as a professor of economics and international affairs at Princeton University. He was awarded the Nobel in economic science in 2008.

Mr Krugman is the author or editor of 20 books and more than 200 papers in professional journals and edited volumes, including "The Return of Depression Economics" (2008) and "The Conscience of a Liberal" (2007).

Not All Recessions Are Created Equal

Earlier this month, The Financial Times linked to a post by commentator Mike Shedlock about the failure of Keynesianism. I’m not sure why: the post was a standard-issue evidence-free rant. But there is something interesting about it, all the same: None of the alleged policy mistakes used to declare Keynesian economics a failure have anything to do with Keynesian economics.

Here’s the list cited by Mr. Shedlock. Written by Urs Paul Engeler, it originally appeared in the conservative Swiss magazine Die Weltwoche: “By following today’s apologists of the British economist John Maynard Keynes (1883-1946), the so-called ‘welfare’ states pumped too much money (which they didn’t have) into consumption: into pensions for all (Europe), exorbitant armament (U.S.), endangered industries (both) and, finally, bailouts for ailing mortgage banks (also both). This intervention was celebrated by Keynes’ disciples as the ‘return of politics.’ ”

Pensions are Keynesian economics? Bloated defense budgets are Keynesian economics? Who knew? Even bank bailouts, whatever you think of them, have nothing
to do with anything in the Keynesian model per se.

So what’s going on here?

I’m not the first person to notice this, but whenever you read conservatives trying to critique what they think the other side believes, you find them assuming that their opponents must be mirror images of themselves. The right believes that less government spending is always good, regardless of circumstances, so it assumes that the other side must always favor more government spending. The right says that deficits are always evil (unless they’re caused by tax cuts), so they assume that the center-left must favor deficits in all conditions.

I personally get this a lot, of course. Not a day goes by without someone blithely asserting that I have never called for spending cuts on anything, and that I have never called for action against budget deficits. A few minutes searching my writing would disabuse them of these beliefs, but they don’t need to check — they know.

What seems beyond their intellectual range is the notion that other people might have subtler beliefs than their own. Keynesianism, in particular, is not about chanting “big government good.” It’s about viewing recessions through the lens of an economic model under which temporary increases in government spending can, under certain circumstances, help reduce unemployment.

Indeed, not all recessions call for fiscal stimulus; it’s the special conditions of the liquidity trap that make stimulus essential now — which is why the Bush deficits, run under non-liquidity trap conditions, say nothing at all about the desirability of deficits now.

I have no hope of actually getting through with this, of course. To actually understand what people like me are saying, we’d have to get past crude slogans and simplistic nostrums. The problem is obvious.

Truthout has licensed this content. It may not be reproduced by any other source and is not covered by our Creative Commons license.

Paul Krugman joined The New York Times in 1999 as a columnist on the Op-Ed page and continues as a professor of economics and international affairs at Princeton University. He was awarded the Nobel in economic science in 2008.

Mr Krugman is the author or editor of 20 books and more than 200 papers in professional journals and edited volumes, including "The Return of Depression Economics" (2008) and "The Conscience of a Liberal" (2007).